Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2015

Sales and Use Tax Annotations

495.0000 SALE

Annotation 495.0385

(a) IN GENERAL—DEFINITION

495.0385Purchasing Agent. A taxpayer proposes to enter into an agreement to act as the purchasing agent for a hospital district (hospital). The contract provides that the taxpayer would purchase supplies on behalf of the hospital, warehouse all the supplies at its facilities until needed by the hospital, mark and identify those supplies as "for" the hospital, maintain insurance naming the hospital as an additional insured, pay the supply vendors, and be responsible for late charges, interest, and price changes arising from the taxpayer's late payments.

The hospital is to pay the taxpayer the cost of supplies from the vendors and will be invoiced upon delivery to the hospital's facilities. Payment will be due 26 days after the date of delivery to the hospital facilities. Also, the taxpayer guarantees no more than a maximum price will be billed to the hospital for the supplies. The taxpayer will be paid a set fee for performance of the requirements of the contract.

Based on the provisions of the contract, the taxpayer is not acting as hospital's agent but, rather, is purchasing supplies for resale to hospital. In order for the taxpayer to act as an agent, the billing to the hospital must be the same as paid by the taxpayer to the supplier. Under the contract, not more than a stated maximum amount will be billed to the hospital. Thus, if the amount paid to the supplier exceeds the maximum, the taxpayer absorbs the difference. Additionally, the taxpayer is responsible for late charges, interest charges arising from late payments, and the hospital does not pay the taxpayer until 26 days after supplies are delivered to the hospital. Accordingly, it is in effect financing the hospital's purchases. Also, the taxpayer is making purchases through a group purchasing arrangement. There is no evidence the taxpayer discloses to the vendor that the taxpayer purchases specific property as an agent of that hospital. Finally, the contract specifies that warehoused goods are marked held "for" the hospital. Under an agency arrangement, the goods would be the property of the hospital, not merely held for it. All of the above factors result in a conclusion that the contract is a contract to buy and sell and not an agency contract. 5/10/88.